Concerning A Challenge for Positive Change, A Few Thoughts

Every once in a while, some thought leader in the real estate industry issues a challenge, a plea, a lamentation about the inability of various parts of the industry to work together.If only we could set aside petty politics, set aside irrational suspicion, and figure out how to work together for mutual benefit, things could be dramatically better.

It is a tantalizing, inspiring vision.

The latest such call comes from one of the doyennes of the industry, Marilyn Wilson, of the WAVGroup. She is one of the most respected voices in real estate, having been a longtime consultant to MLS, Associations, brokerages, franchises, and other organizations. She sits on the board of Council of MLS, and other similarly important organizations. There may be people more influential than Marilyn Wilson, but I’m hard pressed to think of any.

So when she issues a Challenge for Positive Change, it is well worth reading and thinking about. That will carry weight unlike say when yours truly issues some similar call for change. 🙂

I find myself nodding along to Marilyn’s concise descriptions of the problems and issues, and find myself wanting to answer the challenge. However, I do not think that calls for unity and cooperation can go very far without looking hard at some underlying realities of the industry as it is today. The hopeful heart must be married to clear eyes if this challenge is not to become yet another in the long string of quickly forgotten inspirational calls to action.

The Challenge and the Problems

We should begin with the problems as laid out by Marilyn Wilson.

She lists four concerns:

Conflict between Large Brokers and MLS

Conflict between Agents and Brokers

Conflict between the MLS and the Association

Third party sites and everyone else

The solution, then, is to set aside petty differences and work together for the greater good. From the post:

It’s raining out there and we’re so busy infighting that we’re missing the huge storm clouds overhead. It’s time to think about ways to work together for the greater good. Let’s create amazing, lasting relationships with each other. Let’s commit to doggedly serving the needs of homebuyers and sellers, recognizing their ever-changing needs. Let’s be the first to give them what they want…not the LAST. Let’s assure consumers they will receive incredible life-changing service. I want the industry to have the most responsive professionals blowing away the expectations of our clients.

If you’re not inspired by those words, then you don’t care about the real estate industry. There’s the hopeful heart, right there.

Now, let’s turn to the clear eyes.

Conflict Between Large Brokers and the MLS

Marilyn believes that the reasons for the conflict between large brokerages and the MLS are (a) incompetence by the MLS, (b) governance by agents, rather than brokers, and (c) misunderstandings leading to mistrust.

She writes that there are MLSs that do not provide the service and support they need to (presumably, to large brokerages). She points to board dominated by agents who focus narrowly on some pet project, rather than protecting the interests of the brokers. And she points out that even with well-run, broker-managed MLSs (such as clients of the WAVGroup), misunderstanding often leads to mistrust.

It is this last reason — misunderstanding leading to mistrust — that we should focus on, because the first two reasons cannot explain the conflict between large brokerages and the MLS. It isn’t as if small brokerages love incompetent MLSs that take months to process a data feed. Incompetence on the part of the MLS is unacceptable to all of the members, not just the large brokerages. Agent-dominated boards may indeed cause problems, but once again, there is no reason to suspect that such boards only hurt large brokerages. Bad governance hurts all users.

So we must assume that the conflict arises even when the MLSs, to use Marilyn’s words, “respect their brokers and do whatever they can to build productive, collaborative relationships, supplying technologies that are relevant, up to date and easy to use.” Even with such well-run, well-advised MLSs, misunderstandings lead to mistrust.

My take is that there is no misunderstanding here at all. Continuing to insist that the conflict is the result of misunderstanding is in itself a serious misunderstanding of the underlying reality.

“We do not want to see MLSs broadening their mission statements, which introduces vagueness and pursuit of inappropriate objectives. Also, we have long been on record as opposing MLS services that overlap, duplicate, and compete with those that should be reserved for the brokerages that participate in the MLS.”

There is no misunderstanding here. What there is is a conflict of visions arising from the need for both brokerages and MLSs to provide value to their customers: the real estate agent.

Ask any broker or manager what the most important business drivers are and you will get “Recruiting and Retention”. Brokerages compete fiercely with each other to recruit and retain producing agents. As a result, a brokerage’s technology offerings are unquestionably a competitive advantage or disadvantage. Being able to offer a superb brokerage website that generates leads, or a better CRM platform, or a top-notch transaction management platform are all significant competitive advantages in the battle for agents.

For the MLS, being able to offer those things is a member benefit, increasing the value of the MLS to its subscribers and end-users, who are individual agents, not brokerages. The broker may be the Participant, but the agent pays the bill for the MLS.

That’s the reality of the conflict. Large brokerages are disproportionately affected when the MLS supplies technologies that are relevant, up to date, and easy to use because they are the ones who had the resources to invest directly in such technologies. The “leveling the playing field” is a real concern for a large brokerage that had spent a million bucks on a transaction management platform, only to see the MLS offer the exact same thing to every agent who subscribes. The small brokerage, on the other hand, hasn’t invested that kind of money because it can’t afford it. The individual agent certainly has not.

The best evidence comes from my own area: Houston. No one could seriously claim that HAR, under Bob Hale’s leadership, is an incompetent MLS. And HAR.com is undoubtedly the most successful public facing MLS website in the country. There have been years and years of outreach, communication, explanations, meetings, and discussions in the Houston area. There can be no misunderstanding here. And yet, large brokerages in Houston — for example, BHG Gary Greene — are on record as opposing HAR.com and a number of the products and services of HAR.

If we are to resolve the conflict between large brokerages and the MLS, we cannot ignore the reality and call what is a conflict of visions a misunderstanding. Large brokerages want the MLS pared back, not expanded, because they want to provide those relevant, up to date, and easy to use technologies to the agents as a matter of competitive advantage in recruiting and retention.

Conflict Between Agent and Broker

Similarly, if we are to solve the conflict between the agent and the broker, we must be clear eyed (unpleasant as that may be) about the reality of the situation.

Marilyn writes that the fault of the conflict is with the agent, who ignores the training and support provided by the broker, who refuses to use the broker’s systems, and who even thinks that she doesn’t even need the broker. These selfish, short-sighted agents do not appreciate how the broker protects them from litigation and helps make them into better real estate professionals.

Trouble is, that description of the problem is decidedly polemical, rather than descriptive. The assumption necessary to take that stance is that all brokers offer training and support, and that all brokers protect agents from litigation and help to turn mediocrities into real estate superstars. That assumption is simply unsupported by evidence.

There are, for example, thousands of small mom-n-pop boutique brokerages with one or two agents. They offer no training and little support, and that’s precisely how the agents want it. There are very successful brokerage models — see, e.g., Keller Williams — whose whole premise is to allow agents to run their own businesses as they see fit, taking advantage of training or not, as they desire. Freedom as a business model is a real thing in real estate today.

Protection from litigation really means purchasing liability insurance, but numerous brokerages small and large in today’s real estate industry pass on the premium costs to the agents, whether through transaction fees, desk fees, and straight-up insurance premium fees. It isn’t as if the agents do not know that they are paying their own premiums, since that’s explained to them when they are recruited.

Technology offered by brokerages often come with fees attached, whether spelled out as Technology Fee, or part of the “desk fee” that agents often pay the broker. If we’re going to be clear-eyed about things, we must admit that a number of brokerages actually regard these technology fees as a profit center in which they resell technology to their agents at a markup.

In short, it’s awfully hard to blame the agent for being too independent when some brokers positively encourage the philosophy of independence as a business model. The reality of the situation is that brokerage value to the agent has been eroding for years and a new model — the agent team — is arising. I go into that phenomenon in great detail in my premium Realogy report, but chances are, if you’ve read this far, you know it to be true.

The issue isn’t conflict, then, or overly independent real estate agents, but the loss of value of the brokerage to the agent.

Conflict Between the Association and the MLS

Marilyn writes:

Associations are not free of conflict, either. Many regional MLSs are experiencing tensions with their shareholder associations. Some associations believe their regional MLS is trying to somehow weaken their relationship with their association members.

She further notes that MLSs are frustrated with local Associations who don’t effectively communicate and train their members on the MLS technology offerings. The underlying reason, she believes, is that Associations want the MLS to pay larger financial dividends to them.

There is no doubt that tensions and conflicts exist between the Association and the MLS. But the underlying reason has little to do with dividends paid. Many, if not most, MLSs are operated as non-profit organizations that cannot pay a dividend at all. And some of the biggest conflicts exist where the MLS is broker-owned.

The underlying reality of this conflict is that the Association itself has lost so much value over the years that today, the number one reason for a licensee to join the Association of REALTORS is access to the MLS. The vaunted Code of Ethics, the networking with other REALTORS, the political action so vital to the real estate industry, the educational programs offered, member benefit discounts — none of these things matter to the vast majority of an Association’s members who are, in fact, MINO’s (Members In Name Only).

In so-called Thompson jurisdictions where Association membership is not a pre-requisite for MLS membership, one often hears agents say that they can’t possibly be in business without the MLS, but one never hears them say they can’t possibly be in business without the Association.

As important as government affairs is to the real estate industry (just imagine your business without things like the FHA, the 30-year fixed rate mortgage, and the like), a tiny minority of an Association’s members bother with RPAC or political activism.

Third Party Websites and Everyone Else!

Marilyn doesn’t go too much in-depth here, because well, third party companies like Move, Trulia, and Zillow are on everybody’s minds:

And let’s not forget just about every group’s concern with third party property search sites. These are the companies that just about everyone in organized real estate is concerned about. Many are talking about ways to put the “horse back in the barn.” Good luck with that. These companies are some of the best run and most consumer-centric firms in the industry today. They will likely be here long after many of the other groups may die out.

On this one, she hits the nail on the head. She might not be as brutal as say I might be, but the reality is that billion dollar companies are not going anywhere anytime soon. The thinking amongst some parts of the industry that they can compete with the ZTR’s of the world because “they control the data” is… well… not based on reality.

Solutions

We arrive, at last, to possible solutions. Marilyn laid down the challenge. How should we answer it?

Her suggestion is unity and cooperation:

1. Lay down the swords – Instead of trying to kill off each other, what if we stopped for a second and tried to understand the role and value that we each can play. Instead of being blindly competitive with one another, what if we took a different stance and tried to find a way to work together.

She suggests that MLS and Associations redo their governance structures. She implores brokerages to get involved with the local MLS and Associations, rather than just criticizing it. And finally, she calls on everyone in the industry to care first and foremost about the consumer, the actual homebuyer and homeseller:

Here’s a novel idea – It’s ALL of our jobs to serve the needs of those that buy the products we sell. Why is it a bad thing for an MLS to send leads to its brokers while a broker also provides valuable information for consumers? Why can’t brokers work together to provide their own aggregated online presence? Why can’t we support REALTOR®.com to be THE third party website? After all it does carry THE industry brand, doesn’t it? Why can’t REALTOR®.com help every agent, broker AND MLS to provide THE best mobile experience and let them brand it to their own organizations? If we could just think logically for one minute instead of trying to beat each other, we would ALL be a LOT better off.

I find myself yellin “Hallelujah!” and “Preach it, sister!” reading this. Then, the clear eyes kick in. All of the above are theoretically possible, but not without a steely clear-eyed understanding of underlying realities.

For example, it’s not a bad thing for the MLS to send leads to its brokers; but the problem is that brokers (large brokerages especially) resent the loss of competitive advantage in recruiting and retention.

For another example, REALTOR.com could provide an awesome white-labeled mobile app to each and every REALTOR. But they can’t do it for free, so they’ll have to charge an appropriate fee to somebody. Said fee has to be large enough that Move, Inc., which operates REALTOR.com, will generate significant revenue and profit growth year after year, quarter after quarter — otherwise, Wall Street will punish Move’s stock price, and if the deal cut with NAR is actually painful enough, all those pension funds and mutual funds that own Move stock just might bring a big fat shareholder liability lawsuit against Move’s executives and board members. (Not to mention that large brokerages who have now had that recruiting advantage “leveled” away would throw a fit.)

We all can shout for unity until we’re hoarse, and ceaselessly call for working together. But until and unless we deal with the underlying realities, all of the good intentions and comity in the world cannot create unity and peace. Cooperation based on the idea that one party should fall on its sword rarely works out.

So what’s the basis for an enduring solution? Marilyn is exactly on point when she says that if we all could think logically for one minute, instead of trying to beat each other, we’d all be better off.

Here’s the key thing: in order for that to happen, each of the major components of the industry as it exists today — agents, brokers, franchises, Associations, MLSs, technology companies — must do one really important thing that is squarely based on clear eyed, hard reality:

Find the one thing it does better than anyone else, and STOP doing everything else.

That’s the the key. It is the absolutely unavoidable conclusion of thinking logically for one minute.

Strategic consulting, at least in real estate, usually does not involve doing more. It usually involves convincing the client to do less.

If agents, brokers, MLS, Associations, and technology providers can all pare back to doing only that which they do better than anyone else, then working together and cooperation are possible. If not, then not.

What’s my take on what it is that each segment does better than anyone else?

Agents: The actual transaction itself

Brokers: Y’all better figure it out (call me if you need help figuring it out 🙂 )

Franchises: Again, y’all better figure it out

Associations: Government Affairs

MLS: Industry Rules and Regulations

Technology Companies: Technology (kinda obvious there….)

Feel free to disagree with my take. I can’t claim these things are true; I can claim that they are my true opinions, though.

In Closing…

Hopeful heart. Clear Eyes. We must have both to effect the reforms that the industry needs, and the consumer deserves. Marilyn’s challenge for positive change provides the inspiration and the hope. And the many people in the industry I know and the folks who comment on this blog both publicly and via private channels working towards positive change are further reasons for hope. The heart is strong.

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.